New York (PRESS RELEASE – May 27, 2011) – Many small and mid-sized businesses (SMBs) still look to their banks first for working capital, according to Capital Access Network’s (CAN) Spring 2011 edition of the Small Business Barometer. However, only 34 percent have actually obtained a collateral based-bank loan. More than one out of ten SMBs seek out more innovative options than bank loans, including Merchant Cash Advances, non-traditional loan providers, peer to peer lending and factors.

The major criteria banks use to make finance decisions – owner’s personal credit score, personal and business collateral and liquidity – have suffered with the economic downturn, limiting SMB access to capital. Alternatives are available, but at least half of respondents were not aware of one possibility – selling future card sales at a discount in return for access to money today through a product called a Merchant Cash Advance (MCA). Additionally, 68 percent were not aware that they could access finance products that offer payment and remittance flexibility in the form of smaller “daily” payments that help the business’ cash flow by avoiding lump sum monthly payments. 42 percent of those surveyed said that a daily remittance feature would be appealing.

“Small businesses must be vigilant in exploring alternative finance options. While traditional bank loans may be preferred, they may not be the most available or best option for Main Street businesses,” says Glenn Goldman, CEO of CAN. “New products and features are making their way into the marketplace and are often a better fit and easier to access. Time is precious. These options can deliver capital faster, avoiding the delay involved when dealing with banks that decline many more requests than they approve.”

The National Small Business Association reported in July 2010 that a record 41 percent of small business owners say they can’t get adequate financing from traditional banks, up from 22 percent two years ago. “The past few years my confidence in banks has lessened and I’ve started looking for capital elsewhere. Companies and financial institutions that are innovative enough to provide alternatives are the way of the future,” states Jason Roberts, Subway franchisee and customer of AdvanceMe Inc., a Merchant Cash Advance provider.

2 Reactions

Good article and good stats. I feel like business owners and consumers in general have lost confidence in banks. Bank loans are extremely difficult to obtain especially in the MCA loan amount space (typically <250k). Not only are bank loans time and labor intensive to obtain but they look at everything very critically and put mandates to keep ratio's in line over time or they can call your note due and payable. Combine banks not lending to small businesses with also slamming credit limits down on home equity lines and credit cards and it really has left business owners to seek capital elsewhere. The small daily payments for a cash flow business, one with daily cash flows, can be an extremely helpful tool for small businesses. MANY small businesses are cash flow rich but cash surplus poor. Business owners only need to spend a little time educating themselves and looking at "True costs of capital" – not interest rates or factor rates… Look at – if I borrow $50k – and pay it back as agreed how much will that $50k cost me over the term of the loan". Most people can not tell you a true cost of capital if given APR and interest rates….A bank loan is cheaper…. is it? It has a lower interest rate – true. Have you factored in that you pay points up front? Have you factored in that you are borrowing $100k but have to keep $30k in a non interest bearing account with their institution (opportunity cost). Business owners please take the time required to review and compare true "Cost of Capital" – and weigh out the various options.

A good article and a good response from Robert. There are of course other advantages to non bank funding. Also note besides the merchant cash advance vehicle there are private lenders, investors and even some banks today that provide this both quicker and more effeciently than the traditional banks. Our business in this area has been growing at an ever increasing pace.

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